Myles Dawson, Managing Director Adyen UK
If 2018 was the year of GDPR, 2019 is the year of European Payment Services Directive (PSD2) – particularly for those working in the payments, banking or retail sectors. Last year, PSD2 banned surcharges for processing card transactions, forcing many companies to absorb the additional cost for these transactions. Whilst many took the financial hit, some upped their prices to cover costs, leaving a bad taste in many consumers’ mouths.
As new legislation rolls out across Europe in 2019, businesses must prepare to avoid any unexpected surprises. This will involve refinement of back-end processes and investing in technology to ensure they conform to the regulations, whilst creating memorable experiences for consumers at the same time. Whilst many businesses associate PSD2 with painful system changes, it also provides ample opportunity for innovation. In this light, here are three features of the upcoming legislation that every professional involved in payments needs to know about.
- New ways to fight fraud
The imposition of Strong Customer Authentication (SCA) is a key element of the legislation and will be enforced from September. Requiring businesses to use at least two authentication elements to verify electronic payments when challenged by a card issuer. The purpose of this regulation is to tackle fraudulent card transaction and there are positives for both customers and merchants:
- Consumers – SCA enhances security for ‘card not present’ transactions. Merchants must verify payments using something the customer owns (such as a computer or mobile device), something the customer knows (password or temporary code) or something the customer is (through biometrics or facial recognition). In the wake of PSD2’s additional requirements, 3DS 2.0 has emerged to help create a seamless authentication experience for consumers. Thanks to new APIs created during the first implementation of PSD2, Adyen’s 3DS 2.0 solution can analyse hundreds of datapoints to authenticate payments that require strong authentication, without intervention from the customer. It can all happen in the background as they are entering their payment details and confirming their order. It is also optimised for mobile and mobile apps. This is a huge contrast to the first iteration of 3D Secure (3DS1), which was a clunky operation and often disrupted a customer’s checkout experience.
- Merchants – From a merchant perspective, additional verification usually means friction to their customers’ checkout experience and can negatively impact conversion rates. Merchants need to tread carefully when it comes to managing payments fraud, as it’s not only about keeping out the ‘bad’ transactions, but also about removing friction for the ‘good’ ones. However, 3DS 2.0 is much more dynamic, it streamlines the authentication process and improves the customer experience. So not only does it help merchant’s comply with PSD2 without impacting conversion, it also helps reduce fraud-related chargebacks through strong authentication.
- New and improved customer experiences
During the roll-out of PSD2, an alternative payment service powered by Open Banking was introduced to help the UK implement the legislation. The APIs created under open banking have enabled merchants to keep things simpler for customers and create new ways to pay.
As well as helping take the complexity out of the transaction process, open banking also puts the customer in control, allowing them to make informed decisions whilst enjoying a simple and easy navigation and a secure customer journey. PSD2 has been a revolutionary change for customers wanting to take control of their finances by using data to shine a spotlight on their spending.
Understanding payments data will also help merchants enhance customer experiences and drive loyalty initiatives. For example with Adyen, merchants can use payment data to understand their customer base using metrics like visit frequency, location traffic and average spend.. This can be used to help your front of house teams to identify frequent customers and ensure an appropriate level of service and interaction with these loyal customers.
- It has ramifications beyond the EU
While PSD2 is an EU directive, it has global ramifications. Any merchant from outside the EU that is selling to customers in European Economic Area will need to comply with the new PSD2 standards. For those businesses, the impact of the legislation is such that they will need to comply to keep revenue streams from European customers open. In many cases, the logistical and financial issues that go alongside these regulations can sometimes not be worth the hassle of offering its services in European markets. By using 3DS 2.0, global merchants can easily accept transactions originating in Europe. Dynamic 3DS 2.0 solutions will automatically determine compliance requirements for each transaction, to help merchants to manage regulatory requirements.
PSD2 should not be stigmatised as a logistical nightmare – it should be seen as an opportunity for businesses to re-evaluate their processes to create a better customer experience. Investing in payment solutions that implement 3DS 2.0 is one way of ensuring PSD2 regulations are met, while removing the pain points that can be associated with strong authentication. Embracing open banking is another way of diversifying your offering and capitalising on the latest payment revolution. PSD2 is coming and merchants need to be ready to embrace the opportunities it presents.